Spending contracts as volatile consumer spending patterns continue

Spending contracts as volatile consumer spending patterns continue

Economy-wide spending eased by 1.2 per cent in seasonally adjusted terms in October following an outsized gain in September.

The less volatile trend estimate of spending was largely flat for the fifth straight month in October.

At a sectoral level, 10 of the 20 industry sectors contracted in trend terms in October.

Leading the gains in sales was South Australia, followed by Tasmania, and Northern Territory and Queensland.

20 November 2012: Following an outsized gain in business sales in September, consumers have once again returned to prudent habits, with economy-wide spending easing by 1.2 per cent in seasonally adjusted terms in October, according to the Commonwealth Bank Business Sales Indicator (BSI).

The BSI* is a key measure of economy-wide spending, tracking the value of credit and debit card transactions processed through Commonwealth Bank point-of-sale terminals, a sample of approximately 30 per cent of the Australian market.

According to Adam Bennett, Executive General Manager, Local Business Banking, Commonwealth Bank, the latest data is reflective of the challenging operating conditions businesses across the country are currently facing.

“This year has been marked by volatile external conditions, and this is clearly impacting on consumer spending patterns. Over the past five months solid monthly gains have been exactly offset by losses, creating inconsistent and challenging operating conditions for businesses.

“Although consumers are leaning towards conservative spending habits again, the good news is that spending is up by a solid 6.2 per cent on a year ago, offering businesses room for some optimism,” said Mr Bennett.

Despite the inconsistencies in seasonally-adjusted terms, the less volatile trend measure of economy-wide spending was unchanged in October, following on from three months where spending fell by a modest 0.1 per cent each month and a flat result in June.

Craig James, Chief Economist of the Bank’s broking subsidiary CommSec and author of the BSI, believes the latest figures are reflective of subdued consumer sentiment and outlook.

“Aussie consumers are still spending, but very selectively, as evidenced in mixed spending results across sectors. There are few signs that consumers are becoming more upbeat, ensuring business conditions remain subdued.

“Interestingly the last interest rate cut in October doesn’t appear to have boosted spending to the same extent as similar moves in May and June. An improvement in the global financial environment will prove vital in lifting consumer sentiment and spending in the lead up to Christmas,” said Mr James.

Industry analysis – 10 industry sectors fell in October

Across sectors, 10 of the industry sectors fell in October, a similar result to September. The strongest monthly trend increase in sales occurred in Automobiles & Vehicles (up 0.7 per cent) followed by Amusement & Entertainment (up 0.5 per cent). Five sectors posted gains of 0.2- 0.4 per cent.

Amongst the weakest sectors in October were Service Providers (down 4.6 per cent), Mail Order & Telephone Order Providers (down 4.1 per cent), and Hotels & Motels (down 0.9 per cent).

In annual terms, just two of the 20 industry sectors contracted in October, similar to September. Spending fell in Airlines (nfp) and Hotels & Motels (down 3.6 per cent).

At the other end of the scale, spending was strongest at Wholesale Distributors and Manufacturers (up by 24.5 per cent), Amusement & Entertainment (up 12.2 per cent), Retail Stores (up 11.1 per cent), Clothing Stores (up 8.6 per cent), and Contracted Services (up by 7.1 per cent).

State analysis – SA and TAS mark strongest results

Leading the gains in sales was South Australia (up 0.4 per cent), followed by Tasmania (up 0.3 per cent), Northern Territory and Queensland (both up 0.2 per cent), and Victoria (up 0.1 per cent).

Three of the states and territories recorded weaker sales in trend terms in October. Sales fell 0.2 per cent in both the ACT and Western Australia while sales eased 0.1 per cent in NSW.

The trend BSI has now risen for 17 straight months in Northern Territory, for 16 straight months in Queensland, for 15 straight months in South Australia and 7 straight months in Tasmania.

In annual terms, no state or territory had sales below a year ago. Strongest growth was posted in South Australia (up 15.1 per cent), followed by ACT (up 10.7 per cent), Queensland (up 9.0 per cent), Northern Territory (up 6.6 per cent) and Western Australia (up 5.2 per cent).

The Commonwealth Bank Business Sales Indicator is calculated by tracking the value of credit and debit card transactions processed through Commonwealth Bank merchant facilities throughout Australia (approximately 30 per cent of the market).

The Business Sales Indicator has been devised to provide a monthly assessment of spending trends in the Australian economy (covering 20 industry sectors and all Australian states and territories) and is available to the public on the Bank’s website and to the media on or around the 20th day of each month.

Credit and debit card transactions can be volatile on a month-to-month basis, affected by seasonal and irregular factors. The Business Sales Indicator is tracked in seasonally adjusted and trend terms. The overall Index is measured in both seasonally adjusted and trend terms while state and industry data are measured using the less volatile “trend” approach. The seasonally adjusted and trend estimates of the BSI results are derived via the SEASABS statistical program from the Australian Bureau of Statistics.

The monthly Business Sales Indicator has been devised to provide a more timely assessment of spending trends in the economy. The main monthly indicator of spending in the economy is the Australian Bureau of Statistics’ (ABS) Retail Trade release. However these statistics cover just spending at retail establishments, and exclude spending at a raft of other businesses.

The Business Sales Indicator includes transactions made at traditional retail establishments such as supermarkets, clothing stores and cafes & restaurants and as such is more comparable to the ABS Household Final Consumption Expenditure released on a quarterly basis. The Business Sales Indicator also covers businesses such as airlines, car dealers and utilities such as water and electricity companies as well as motels, business, professional and government services and wholesalers.

The Business Sales Indicator includes industry sectors based on the International Merchant Category Code (MCC) categories. MCC is a four-digit number assigned to a business when the business first starts accepting cards as a form of payment.